So are you saying I don't actually need to do anything about the $465 overwithdrawal now? I'm confused because I was planning to redeposit that amount to be safe. Or are you just saying they won't automatically flag it?

I'm not saying you should ignore the overwithdrawal - definitely handle it properly. What I'm pointing out is that the burden is on you to do the right thing since the IRS doesn't get automatic reporting of your qualified expenses. Your plan to redeposit the $465 is the correct approach if you're within the 60-day window. That's the cleanest solution. If you're outside that window, then you'll need to calculate the taxable portion of that overwithdrawal (just the earnings part) and pay the tax and penalty. The IRS won't automatically know you had an overwithdrawal, but if you get audited, you'll need to show that you handled it correctly.

This is actually a HUGE tip that more people should know about. Changed how I handled my son's 529 completely when he got scholarships. Just to confirm - this means the overwithdrawal isn't subject to the 10% penalty at all, right? Just regular income tax on the earnings portion?

How does the letter need to be formatted? Does it need to be notarized or anything?

The letter doesn't need to be notarized, but it should be on company letterhead if possible and signed by the owner or appropriate manager. Keep the format professional but straightforward - date, proper greeting, clear explanation of the facts, and formal closing with signature. Make sure it includes specific information like the worker's full legal name, approximate dates of employment, total compensation paid, and the reason for requesting the ITIN. I also recommend including the employer's EIN and contact information for verification purposes. While not strictly required, this level of detail helps demonstrate the legitimacy of the request and can smooth the process considerably.

I helped three employees apply for ITINs in January 2024. It took exactly 9 weeks for two of them, and the third one took 11 weeks. So definitely longer than the official estimate. This was with complete applications submitted through an Acceptance Agent.

Omg I didn't even think of that - my parents have always claimed me as a dependent but I moved out last May and have been supporting myself since then. How do I know if they can still claim me or not for 2024 taxes?

There are specific tests the IRS uses to determine if someone can be claimed as a dependent. The main ones are the support test (did you provide more than half of your own financial support for the year?) and the residency test (did you live with your parents for more than half the year?). Since you moved out in May, you lived with them for less than half of 2024, but the support test is the bigger factor. You need to calculate all your living expenses (rent, food, utilities, medical, education, etc.) for the entire year and determine if you provided more than 50% of that total yourself. If you did, your parents can't claim you. If they provided more than 50% (including while you lived with them), they can still claim you even though you moved out.

This is correct but keep in mind you might still need to file a state return if you earned any money in another state during the year (like if you had a summer job somewhere else). The tax software will ask you questions to determine this.

22 Is it too late to file 8606 forms for previous years? I've done backdoor Roth conversions for the past 3 years but I'm not sure my tax guy filed these forms. Should I go back and amend all my previous returns?

14 It's not too late to file Form 8606 for previous years. You can (and should) file an amended return for any year where you did a Backdoor Roth conversion but didn't include Form 8606. The IRS generally allows amendments going back 3 years. This is really important because Form 8606 establishes your non-deductible basis in the IRA, which prevents the money from being taxed twice. Without this documentation, you might end up paying taxes on money that should be tax-free when you eventually withdraw from the Roth IRA. I'd recommend reviewing your past returns and filing amendments as needed - it's worth the effort to avoid potential tax issues down the road.

11 thx for explaining! so does the code 2 vs code B actually affect how much tax i would pay? or is it just a technical difference?

Lenders often have some flexibility with the timing, especially if you're proactive in discussing it with them. While they have reporting requirements, they sometimes can work with you on structuring the forgiveness. For example, some lenders might be willing to split a large debt cancellation across two tax years (December/January) if you explain your tax situation. It really depends on the lender and your relationship with them, but it's definitely worth having that conversation well before the planned cancellation.

That's a really helpful suggestion about timing it with medical expenses. I do have some procedures I've been putting off that would probably hit the threshold for medical deductions. Do you know if lenders are usually open to negotiating the timing of debt cancellation? I wasn't sure if I had any control over when they issue the 1099-C.

Good point! Also, some states follow federal insolvency rules and some have their own. I live in California and they have slightly different rules for cancelled debt than the IRS does.